G.R. No.

167679 July 22, 2015

ING BANK N.V. vs.

COMMISSIONER OF INTERNAL REVENUE

FACTS: On January 3, 2000, ING received a Final Assessment Notice (FAN) dated December 3, 1999. The FAN also
contained the Details of Assessment and 13 Assessment Notices. The FAN covered the deficiency tax assessments for
years 1996 and 1997.

ING Bank paid the deficiency assessments for the 1996 compromise penalty, 1997 deficiency documentary stamp tax
and 1997 deficiency final tax. ING Bank, however, protested the remaining 10 deficiency tax assessments.

ING Bank filed a Petition for Review before the CTA to seek cancellation and withdrawal of the deficiency tax
assessments for the years 1996 and 1997, including the alleged deficiency documentary stamp tax on special savings
accounts, deficiency onshore tax, and deficiency withholding tax on compensation.

CTA partially granted the petition, the court CANCELLED and WITHDRAWN the assessments for 1996 and 1997
deficiency income tax, 1996 and 1997 deficiency branch profit remittance tax and the 1997 deficiency documentary
stamp tax, but, it ordered petitioner to pay the amount of P240.1M for 1996 and 1997 deficiency withholding tax on
compensation, 1996 deficiency onshore tax and 1996 and 1997 deficiency documentary stamp tax on special savings
accounts.

On December 8, 2004, ING Bank appealed to the CTA En Banc. CTA denied for lack of merit.

ING Bank filed a Motion to the SC that it had availed itself of the tax amnesty under RA 9480 covering all national
internal revenue taxes for the taxable year 2005 and prior years, with or without assessments duly issued therefor, that
have remained unpaid as of December 31, 2005. ING Bank stated that it filed before the BIR its Notice of Availment of
Tax Amnesty on December 2007, together with the

(1) SALN as of December 31, 2005 ;

(2) Tax Amnesty Return For Taxable Year 2005 and Prior Years and
(3) Tax Amnesty Payment Form for Taxable Year 2005 and Prior Years showing payment of the amnesty tax in the
amount of P500,000.00.

ING Bank prayed that the SC issue a resolution of its availment of the tax amnesty, and confirming its entitlement to all
the immunities and privileges under Section 6 of RA 9480.

However, ING Bank availed itself of the tax amnesty under RA 9480, with respect to its liabilities for deficiency
documentary stamp taxes on its special savings accounts for the taxable years 1996 and 1997 and deficiency tax on
onshore interest income under the foreign currency deposit system for taxable year 1996.

The CIR filed its comment and ING Bank its Reply.

CONTENTIONS:

1. Tax amnesty availment

The CIR claims that ING Bank is not qualified to avail itself of the tax amnesty granted under Republic Act No. 9480
because both the CTA En Banc and Second Division ruled in its favor that confirmed the liability of ING Bank for
deficiency documentary stamp taxes, onshore taxes, and withholding taxes.

CIR asserts that BIR Revenue Mem. Cir. No. 19-2008 excludes "cases which were ruled by any court (even without
finality) in favor of the BIR prior to amnesty availment of the taxpayer" from the coverage of the tax amnesty under RA
9480. Further, ING Bank’s availment of the tax amnesty is still subject to its evaluation that it is "empowered to exercise
its sound discretion in the implementation of a tax amnesty in favor of a taxpayer," and "petitioner cannot presume that
its application would be granted."

ING Bank counters that BIR Revenue Mem. Cir. No. 19-2008 cannot override RA 9480, which only exclude from tax
amnesty "tax cases subject of final and executory judgment by the courts." It argues that there is nothing in the law that
gives the CIR the discretion to rescind the legal effects of its tax amnesty availment.

2. Withholding tax on compensation

Petitioner ING Bank claims that it is not liable for withholding taxes on bonuses accruing to its officers and employees
during taxable years 1996 and 1997. The liability of the employer to withhold the tax does not arise until such bonus is
actually distributed.

The CIR counters that in petitioner’s case, bonuses were determined during the year but were distributed in the
succeeding year. No withholding of income tax was effected but the bonuses were claimed as an expense for the year.
Since the bonuses were not subjected to withholding tax during the year they were claimed as an expense, the same
should be disallowed pursuant to the above-quoted law.

CIR contends that petitioner ING Bank’s act of "claiming the subject bonuses as deductible expenses in its taxable
income although it has not yet withheld and remitted the corresponding withholding tax" to the BIR contravened
Section 29(j) of the 1997 NIRC. The CIR claims that "subject bonuses should also be disallowed as deductible expenses of
petitioner."

ISSUES:

1. Whether ING Bank may validly avail itself of the tax amnesty granted by Republic Act No. 9480; and YES

2. Whether petitioner ING Bank is liable for deficiency withholding tax on accrued bonuses for the taxable years 1996
and 1997. YES

RULING:

1. YES. Taxpayers with pending tax cases may avail themselves of the tax amnesty program under RA 9480.

In CS Garment, Inc. v. CIR, this court has declared the exception ‘issues and cases which were ruled by any court (even
without finality) in favor of the BIR prior to amnesty availment of the taxpayer’ under BIR Revenue MC No. 19-2008 as
invalid, for going beyond the scope of the provisions of the Tax Amnesty Law."

Neither the law nor the implementing rules state that a court ruling that has not attained finality would preclude the
availment of the benefits of the Tax Amnesty Law. Both R.A. 9480 and DOF Order No. 29-07 are quite precise in
declaring that "tax cases subject of final and executory judgment by the courts" are the ones excepted from the benefits
of the law.

Petitioner ING Bank showed that it complied with the requirements under RA 9480. The CIR never questioned that
petitioner ING Bank fully complied with the requirements for tax amnesty under the law. Moreover, the contestability
period of one (1) year from the time of petitioner ING Bank’s availment of the tax amnesty law on December 14, 2007
lapsed. Correspondingly, it is fully entitled to the immunities and privileges mentioned under Section 6 of RA 9480.

RA 9480 confers no discretion on the CIR, its authority under RA 9480 is limited to determining whether

(a) the taxpayer is qualified to avail oneself of the tax amnesty;

(b) all the requirements for availment under the law were complied with; and
(c) the correct amount of amnesty tax was paid within the period prescribed by law.

2. YES. An expense, whether the same is paid or payable, shall be allowed as a deduction only if it is shown that the tax
required to be deducted and withheld therefrom was paid to the BIR.

Under the NIRC, every form of compensation for personal services is subject to income tax and, consequently, to
withholding tax. Petitioner ING Bank insists that the bonus accruals in 1996 and 1997 were not yet subject to
withholding tax because these bonuses were actually distributed only in the succeeding years of their accrual when the
amounts were finally determined.

The tax on compensation income is withheld at source under the creditable withholding tax system wherein the tax
withheld is intended to equal or at least approximate the tax due of the payee on the said income. It was designed to
enable (a) the individual taxpayer to meet his or her income tax liability on compensation earned; and (b) the
government to collect at source the appropriate taxes on compensation. Taxes withheld are creditable in nature. Thus,
the employee is still required to file an income tax return to report the income and/or pay the difference between the
tax withheld and the tax due on the income. For over withholding, the employee is refunded. Therefore, absolute or
exact accuracy in the determination of the amount of the compensation income is not a prerequisite for the employer’s
withholding obligation to arise.
It is true that the law and implementing regulations require the employer to deduct and pay the income tax on
compensation paid to its employees, either actually or constructively.

Every person required to deduct and withhold the tax from the compensation of an employee is liable for the payment
of such tax whether or not collected from the employee. However, if the employer in violation of the provisions of the
Tax Code fails to deduct and withhold and thereafter the employee pays the tax, it shall no longer be collected from the
employer. Such payment does not operate to relieve the employer from liability for penalties or additions to the tax for
failure to deduct and withhold within the time prescribed by law or regulations. The employer will not be relieved of his
liability for payment of the tax required to be withheld unless he can show that the tax has been paid by the employee.

The amount of any tax withheld/collected by the employer is a special fund in trust for the Government of the
Philippines.

When the employer or other person required deducting and withholding the tax under this Chapter XI, Title II of the Tax
Code has withheld and paid such tax to the CIR or to any authorized collecting officer, then such employer or person
shall be relieved of any liability to any person. (Emphasis supplied)

On the other hand, it is also true that under Section 45 of the 1997 National Internal Revenue Code (then Section 39 of
the 1977 National Internal Revenue Code, as amended), deductions from gross income are taken for the taxable year in
which "paid or accrued" or "paid or incurred" is dependent upon the method of accounting income and expenses
adopted by the taxpayer.

In CIR v. Isabela Cultural Corporation, this court explained the accrual method of accounting, as against the cash
method:

Accounting methods for tax purposes comprise a set of rules for determining when and how to report income and
deductions. . . .

Revenue Audit Memorandum Order No. 1-2000, provides that under the accrual method of accounting, expenses not
being claimed as deductions by a taxpayer in the current year when they are incurred cannot be claimed as deduction
from income for the succeeding year. Thus, a taxpayer who is authorized to deduct certain expenses and other allowable
deductions for the current year but failed to do so cannot deduct the same for the next year.

The accrual method relies upon the taxpayer’s right to receive amounts or its obligation to pay them, in opposition to
actual receipt or payment, which characterizes the cash method of accounting. Amounts of income accrue where the
right to receive them become fixed, where there is created an enforceable liability. Similarly, liabilities are accrued when
fixed and determinable in amount, without regard to indeterminacy merely of time of payment.

For a taxpayer using the accrual method, the determinative question is, when do the facts present themselves in such a
manner that the taxpayer must recognize income or expense? The accrual of income and expense is permitted when
the all-events test has been met. This test requires: (1) fixing of a right to income or liability to pay; and (2) the
availability of the reasonable accurate determination of such income or liability.

The all-events test requires the right to income or liability be fixed, and the amount of such income or liability is
determined with reasonable accuracy. However, the test does not demand that the amount of income or liability be
known absolutely, only that a taxpayer has at his disposal the information necessary to compute the amount with
reasonable accuracy. The all-events test is satisfied where computation remains uncertain, if its basis is unchangeable;
the test is satisfied where a computation may be unknown, but is not as much as unknowable, within the taxable year.
The amount of liability does not have to be determined exactly; it must be determined with "reasonable accuracy.”
Accordingly, the term "reasonable accuracy" implies something less than exact or completely accurate amount. Thus, if
the taxpayer is on cash basis, he expense is deductible in the year it was paid, regardless of the year it was incurred. If he
is on the accrual method, he can deduct the expense upon accrual thereof. An item that is reasonably ascertained as to
amount and acknowledged to be due has "accrued"; actual payment is not essential to constitute "expense."

Stated otherwise, an expense is accrued and deducted for tax purposes when (1) the obligation to pay is already fixed;
(2) the amount can be determined with reasonable accuracy; and (3) it is already knowable or the taxpayer can
reasonably be expected to have known at the closing of its books for the taxable year.

Section 29(j) of the 1977 National Internal Revenue Code (Section 34(K) of the 1997 National Internal Revenue Code)
expressly requires, as a condition for deductibility of an expense, that the tax required to be withheld on the amount
paid or payable is shown to have been remitted to the Bureau of Internal Revenue by the taxpayer constituted as a
withholding agent of the government.

The provision of Section 72 of the 1977 National Internal Revenue Code (Section 79 of the 1997 National Internal
Revenue Code) regarding withholding on wages must be read and construed in harmony with Section 29(j) of the 1977
National Internal Revenue Code (Section 34(K) of the 1997 National Internal Revenue Code) on deductions from gross
income. This is in accordance with the rule on statutory construction that an interpretation is to be sought which gives
effect to the whole of the statute, such that every part is made effective, harmonious, and sensible, if possible, and not
defeated nor rendered insignificant, meaningless, and nugatory. If we go by the theory of petitioner ING Bank, then the
condition imposed by Section 29(j) (Section 34(K)) would have been rendered nugatory, or we would in effect have
created an exception to this mandatory requirement when there was none in the law.

Reading together the two provisions, we hold that the obligation of the payor/employer to deduct and withhold the
related withholding tax arises at the time the income was paid or accrued or recorded as an expense in the
payor’s/employer’s books, whichever comes first.

Petitioner ING Bank accrued or recorded the bonuses as deductible expense in its books. Therefore, its obligation to
withhold the related withholding tax due from the deductions for accrued bonuses arose at the time of accrual and
not at the time of actual payment.

In Filipinas Synthetic Fiber Corporation v. Court of Appeals, the issue was raised on "whether the liability to withhold tax
at source on income payments to non-resident foreign corporations arises upon remittance of the amounts due to the
foreign creditors or upon accrual thereof." In resolving this issue, this court considered the nature of the accounting
method employed by the withholding agent, which was the accrual method, wherein it was the right to receive income,
and not the actual receipt, that determined when to report the amount as part of the taxpayer’s gross income. It upheld
the lower court’s finding that there was already a definite liability on the part of petitioner at the maturity of the loan
contracts. Moreover, petitioner already deducted as business expense the said amounts as interests due to the foreign
corporation. Consequently, the taxpayer could not claim that there was "no duty to withhold and remit income taxes as
yet because the loan contract was not yet due and demandable." Petitioner, "having ‘written-off’ the amounts as
business expense in its books, . . . had taken advantage of the benefit provided in the law allowing for deductions from
gross income."

Here, petitioner ING Bank already recognized a definite liability on its part considering that it had deducted as
business expense from its gross income the accrued bonuses due to its employees. Underlying its accrual of the bonus
expense was a reasonable expectation or probability that the bonus would be achieved. In this sense, there was
already a constructive payment for income tax purposes as these accrued bonuses were already allotted or made
available to its officers and employees.

We note petitioner ING Bank's earlier claim before the Court of Tax Appeals that the bonus accruals in 1996 and 1997
were disbursed in the following year of accrual, as reimbursements of representation, travel, and entertainment
expenses incurred by its employees. This shows that the accrued bonuses in the amounts of P400,075.0l (1996) and
Pl,034,119.43 (1997) on which deficiency withholding taxes of Pl67,384.97 (1996) and P397,157.70 (1997) were
imposed, respectively, were already set apart or made available to petitioner ING Bank's officers and employees. To
avoid any tax issue, petitioner ING Bank SHOULD likewise have recognized the withholding tax liabilities associated
with the bonuses at the time of accrual.

DISPOSITIVE POETION:

WHEREFORE, the Petition is PARTLY GRANTED. The assessments with respect to petitioner ING Bank's liabilities for
deficiency documentary stamp taxes on its special savings accounts for the taxable years 1996 and 1997 and deficiency
tax on onshore interest income under the foreign currency deposit system for taxable year 1996 are hereby SET
ASIDE solely in view of petitioner ING Bank's availment of the tax amnesty program under Republic Act No. 9480. The
April 5, 2005 Decision of the Court of Tax Appeals En Banc, which affirmed the August 9, 2004 Decision and November
12, 2004 Resolution of the Court of Tax Appeals Second Division holding petitioner ING Bank liable for deficiency
withholding tax on compensation for the taxable years 1996 and 1997 in the total amount of P564,542.67 inclusive of
interest, is AFFIRMED.